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NCCBI,
showing leadership
on budget crisis issue, proposes
half-cent hike in local option sales tax
In
a letter distributed today to every member of the state House
and Senate as well as Gov. Mike Easley, NCCBI said the
legislature should pass a bill allowing local governments the
option of increasing the sales tax by half a cent to raise
needed revenue.
However, NCCBI said it will support higher local sales taxes
if the counties agree to give up the reimbursement they
receive from the state as a result of the repeal of the
inventory and intangibles tax. That reimbursement was $333
million this fiscal year.
The sales tax is 6 cents in every county but Mecklenburg,
where it’s 6 ½ cents. Of that, the state keeps 4 cents,
leaving the counties with 2 cents. Estimates are that a
half-cent hike in sales taxes would generate about $390
million a year.
The letter, signed by President Phil Kirk and Vice President
of Governmental Affairs Leslie Bevacqua, said the NCCBI
Executive Committee, the association’s governing body, had
unanimously endorsed the action.
The letter purposefully was released after the House had
completed work on its budget. The Senate passed a budget bill
three weeks ago. NCCBI wanted to wait until both chambers had
done as much as possible to cut state spending before
advocating any increase in revenues.
The association, which doesn’t often advocate higher taxes,
said it was concerned about the state’s fiscal future. “We
appreciate all of the thought that has been given by members
of the Senate and House in making tough budget decisions that
include substantial cuts in spending,” the NCCBI letter
said. “We applaud the efforts of both the Senate and the
House for their courageous efforts and the difficult decisions
they have made in dealing with the state’s budget
challenges.
“However,
with the slowdown in the state’s economy and projections
that we will not experience the growth in revenues that we
have enjoyed during the past several years, we have concerns
that funds for the state’s rainy day fund and repairs and
renovations are not adequate. As the Senate and House
conferees debate the differences in the two budgets, we
encourage you to stick with the tough choices you have made to
limit government spending but to also weigh the issue of the
adequacy of the state’s fiscal reserves.”
The
complete text of the letter is reprinted below.
By throwing its considerable clout behind a sales tax
increase, NCCBI’s action is sure to provide momentum to a
budding movement in the state House to bring up such a bill in
the next few weeks. NCCBI’s announcement also is welcome
news to many counties, which have been lobbying for a way to
generate additional revenue.
NCCBI said it realized that many legislators, including most
Republicans, had signed a “no tax” pledge last fall. “We
do not take that pledge lightly,” the letter said, although
we would respectfully point out that it was signed before the
economy worsened; before we lost more manufacturing jobs than
any other state; and before the unemployment rate increased
faster than any other state’s and exceeded the national
average for four straight months.”
NCCBI said it feared many counties would be forced to raise
property taxes unless they were given the option of raising
the sales tax rate slightly. Local government finances have
been hurt by the slowing economy and were further pinched
earlier this year when Gov. Easley, acting to close a widening
state budget deficit, froze $95 million in state
reimbursements.
David Crotts, a senior analyst in the legislature’s Fiscal
Research Division, recently estimated that a one-cent increase
in the sales tax would raise about $780 million a year in
revenue. It could be assumed, then, that a half-cent increase
would generate about $390 million. That would translate into a
roughly $60 million gain in local government revenues if they
gave up the $333 million in state reimbursements for repeal of
the inventory and intangibles tax.
House Finance Committee Chairman Paul Luebke (D-Durham) was
quoted as saying "we'll definitely see a (local option
sales tax) bill. The speaker indicated he wants to do
it."
Counties last saw an increase in their sales tax rate in 1986.
Mecklenburg’s extra half-cent raise came in 1997 to pay for
mass transit.
Text
of NCCBI letter advocating half-cent increase in local option
sales tax
June 29, 2001
Dear Members of the N.C. General Assembly:
The Executive Committee of N.C. Citizens for Business and
Industry (NCCBI) has voted unanimously to support a 1/2-cent
local option sales tax on the condition that local governments
give up their current reimbursement from the state as a result
of repeal of the inventory and intangibles tax. The Executive
Committee also voted unanimously to support an additional
1/2-cent statewide sales tax with a 3-year sunset if it is
determined that these revenues are needed to help maintain the
state’s fiscal integrity during these very difficult budget
times.
We appreciate
all of the thought that has been given by members of the
Senate and House in making tough budget decisions that include
substantial cuts in spending. We applaud the efforts of both
the Senate and the House for their courageous efforts and the
difficult decisions they have made in dealing with the
state’s budget challenges.
However, with
the slowdown in the state’s economy and projections that we
will not experience the growth in revenues that we have
enjoyed during the past several years, we have concerns that
funds for the state’s rainy day fund and repairs and
renovations are not adequate. As the Senate and House
conferees debate the differences in the two budgets, we
encourage you to stick with the tough choices you have made to
limit government spending but to also weigh the issue of the
adequacy of the state’s fiscal reserves.
Some people
may question why NCCBI is weighing in on this issue. Our staff
has been challenged by NCCBI members during the past decade to
become more pro-active and less reactive. We have been
asked to be more visible in Raleigh and throughout the state.
That’s why we led the highly successful K-12 and road bonds
campaign in 1996 and the university and community college bond
campaign in 2000. That’s why we led successful coalitions to
defeat the ergonomics rule at the federal and state levels; to
reform the legal system; to improve public schools; and to
improve the workers compensation system.
Because of
the political difficulties in making tough decisions to
increase revenues to meet our state’s growing needs,
NCCBI’s Executive Committee began considerable debate and
study of issues related to the state budget. Ultimately, the
committee made the courageous decision to advocate for
increased revenues, but only after substantial cuts in
spending had been achieved. Because of your
thorough scrutiny of the state’s budget, spending in many
programs has actually been reduced. In others, the growth rate
has been slowed.
We realize
fully that many legislators signed a “no tax” pledge
during the last campaign. We do not take that pledge lightly,
although we would respectfully point out that it was signed
before the economy worsened; before we lost more manufacturing
jobs than any other state; and before the unemployment rate
increased faster than any other state’s and exceeded the
national average for four straight months.
There will be
those cynics who will criticize NCCBI for not supporting an
increase in the corporate income tax instead of the sales tax.
Let us point out that NCCBI, in fact, did just that in 1991.
However, because corporate tax revenues are down by 30 percent
and because of high unemployment, now is not the time to add
to the financial burdens which so many of our employers face
today. Also, we do not want to advocate any tax policy that
will put our state at a further economic competitive
disadvantage. Our corporate income tax is currently higher
than South Carolina, Virginia, Georgia, Tennessee and most
other states.
Some will say
the sales tax is regressive. However, we believe that all
people should assist in paying for government programs and
services which they use. Passage of an increase in the sales
tax will lessen the need for local governments to increase the
burdensome property tax. This year, local
governments find themselves in financial stress, which they
have not experienced in more than a decade. A combination of
factors have contributed to this crisis, including
astronomical growth in Medicaid; overwhelming demands from
public schools for both capital and current expenses;
increased demands for services and decreased revenue as a
result of a slowing economy and the withholding of $95 million
of state reimbursements in order to balance the state’s
budget. As a result of these factors, counties and cities are
under increased pressure to raise property taxes and cut
services this year. The County Commissioners Association
estimates that almost 1/2 of the counties will be forced to
raise property taxes and most will cut services this year. The
N.C. League of Municipalities has raised similar concerns
about cities and towns across the state increasing property
taxes, reducing service levels and deferring capital
investments. A long-term solution to this problem must be
found.
Furthermore,
local governments have not received any major new taxing
authority since 1986 when the last local option sales tax was
authorized. Since then, local responsibilities have increased,
federal assistance has dramatically declined and federal
regulations have escalated. Local government revenue
sources have simply not kept up. Even though local government
reimbursements of $333 million are included in the state’s
budget for 2001-2002, we have seen this year that if the state
experiences a slowdown in revenue growth, those monies could
again be withheld. We believe it would be more fiscally
responsible to approve a 1/2-cent local option sales tax for
cities and counties to replace the proposed reimbursements and
move that money into the state’s rainy day fund.
We in North
Carolina are accustomed to good government, one which is
progressive yet conservative; one which is responsive; and one
which is a national leader in so many areas. However,
that reputation has caused our population to explode – more
than one million new citizens in the last decade alone! We
have not kept up with our infrastructure. Bond issues are
helping, but the fact that we have the fourth fastest growing
public school system in the nation and the many unmet
transportation needs mean that we must seriously address these
challenges which have arisen largely because of our growth.
Delay will make us a less attractive state, and meeting these
challenges will cost more in the future.
These are
just some of the reasons that NCCBI’s Executive Committee
– which is composed of representatives from manufacturing,
financial services, utilities, education, law firms,
construction, retail, chambers of commerce, accounting firms,
technology, insurance, restaurants, travel and tourism and
health care – has decided to take a proactive step and make
recommendations that will maintain North Carolina’s fiscal
integrity. NCCBI has traditionally led efforts to keep North
Carolina competitive. Now, we must again step forward
and be proactive and courageous.
Sincerely,
Phillip J.
Kirk,
Jr.
Leslie H. Bevacqua
President
Vice President for Governmental Affairs
Cc:
Governor Mike Easley
, NCCBI Board of Directors
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